Car makers feel heat of falling rupee, mull price hike

The 15% depreciation in the value of the rupee in the last two months has put severe pressure on companies which import substantial amount of components from overseas. Auto companies like General Motors India and Toyota Kirloskar Motor, are mulling hike in prices to offset the rising cost of component imports

New Delhi: Hit by the depreciating rupee, auto companies, including General Motors India and Toyota Kirloskar Motor, are mulling hike in prices to offset the rising cost of component imports, reports PTI.

“We import lots of parts and the rupee depreciation is impacting us. We were planning to review prices in January but due to the currency fluctuation we may have to do it soon,” General Motors India vice-president P Balendran told PTI.

He said commodity prices have also been increasing, adding to the burden on auto firms.

“We are currently evaluating the quantum of impact on the prices of our products,” Mr Balendran said.

Expressing similar views, Toyota Kirloskar Motor deputy managing director (marketing) Sandeep Singh said the present currency fluctuation is affecting the company severely.

“It is a double whammy for us. On one hand, yen is appreciating, while on the other hand rupee is depreciating.

Our margins are getting impacted,” he added.

Asked if the company will increase prices, Mr Singh said: “As of now we are absorbing, but if there is too much pressure, then we will share the burden with customers.

“Currently, we are revisiting the prices of all our models. Any new price increase, if we take, will be applicable from 1st January.”

The rupee plunged to an all-time low this morning to Rs52.50 against the US dollar on the Interbank Foreign Exchange on sustained demand for the American currency.

It is putting severe pressure on companies which import substantial amount of components from overseas.

“The rupee depreciation is adversely impacting us as we are a net importer. This is the worst movement of rupee against US dollar. It has lost 15% in the last two months,” Maruti Suzuki India (MSI) chief financial officer Ajay Seth said.

MSI has both direct and indirect exposure to foreign currencies while importing components, and it imports about Rs8,000 crore worth of parts annually, he added.

“At the same time, we also export cars and that is benefiting at present. However, considering both, we are impacted as a net importer. The situation is affecting our margins,” Mr Seth said.

He, however, said the company does not have any plans at present to increase the prices of its products.

The hit due to the weakening of rupee comes at a time when auto makers have been enduring one of the toughest periods with car sales in the country on a continuous decline.

In October, car sales in India registered their steepest monthly decline in nearly 11 years, tanking 23.77% on account of a huge drop in output by the country's largest car-maker MSI due to labour trouble, coupled with high interest rates and rising fuel prices.

Another auto maker Honda Siel Cars India (HSCI) said it is not impacted so far as it is protected under long-term contracts with its foreign vendors.

“So far, we have not faced any impact due to depreciation of rupee as we have forward contracts for importing components, and the ongoing volatility is very recent. If it remains like this, then there will be some impact on us in the long run,” HSCI senior vice president (sales and marketing) Jnaneswar Sen said.

He declined, however, to share for how long HSCI’s imports are protected under forward contracts.

Volkswagen Group Sales India, member of the board and director, Neeraj Garg said: “There is pressure on us because of the currency fluctuation. The quantum of impact has to be worked out as we have many import contents in our models, except Polo and Vento.”

Mr Garg, however, said: “It is very difficult to pass on the burden to customers as the market has already slowed down. We need to do a fine balancing act”.

Commenting on the current situation, Society of India Automobile Manufacturers director general Vishnu Mathur said: “It is a complex situation. Those who are importing are paying higher cost, while those who are exporting are getting higher revenue.”

The companies who are not exporting products will have a higher impact due to import of CBUs, engines and other critical components, he added.

When asked if the companies may hike the prices to mitigate the impact of rupee depreciation, Mr Mathur said: “I really doubt if in today’s market scenario, anyone will pass on the increase to the customers.”

The country’s second largest car maker Hyundai Motor India (HMIL) said its imports are getting affected, but due to high level of exports, the company is less impacted currently.

“Our imports are getting costlier, but we are able to absorb the rising cost as we are a big exporter from India. So we have some cushion to the current adverse situation,” a spokesperson of HMIL said.


The truth about mutual funds and how to select right scheme

Moneylife Foundation conducted its 94th seminar – this time on mutual funds.

In an interactive and lively session on mutual funds (MFs), Debashis Basu, Founder-Trustee of Moneylife Foundation and Editor & Publisher of Moneylife provided a perspective on how one should invest money in equity mutual funds, apart from explaining the different types of mutual funds and how to choose the best schemes.

Mr Basu conducted the workshop, revealing several hidden aspects about mutual funds. This was the 94th workshop organised by the Foundation over the past 21 months that drew and engaged the audience.

Mr Basu also analysed on the benefits and personal risks associated with different types of mutual funds available in the market and investment strategies for each individual. He said that concepts like asking a person to aim at his/her risk-taking ability through a set of questions unrelated to finance were misleading. In reality, everybody invest for returns and nobody wants to lose money. So where to invest is important but how to and how much to invest is even more critical, he added.

He explained that capital protection fund or monthly income plans are a misnomer. They invest 80% in fixed income securities and 20% in equity; how would capital be protected when the equities market crash or bond prices don’t go up? It would make more sense for the investor to put his money in a fixed deposit if he seeks no risk and wishes to protect his capital. "Avoid unit linked insurance plans (ULIPs). Fixed maturity plans (FMPs) are not so attractive. Therefore for individual investors, fixed deposits (FDs) in bank are better at present," Mr Basu said.

Replying to a question on investment in gold funds as safe bet, Mr Basu said, these days gold funds are attractive, as prices have gone up each year for over past 10 years. "For investing in gold fund, it is not necessary to have a broking or demat account. Most gold exchange traded funds (ETFs), available at present are identical in features. The only risk in these funds is liquidity. In case the price of gold begins to fall one day there could be more sellers than buyers," he added.

Mr Basu also said that commodities are good only for trading in futures. He said, "Commodities is a margin based trading. It is not desirable for taking delivery or holding for the long term. It is not the correct option in comparison with equity mutual funds, which are long-term investments with growth."



Madhur Kotharay

5 years ago

One big problem we face with thematic mutual fund schemes is that fund managers take an omnibus mandate and change their allocation to suit themselves to protect the NAV.

For example, most infra mutual funds invest (by mandate!) in anything from infra, construction, cement, banking (financial infrastructure?), agri, and even IT (computer infrastructure?). HDFC Infra fund has 35% of its holdings in banking!

And someone as sensible as Dhirendra Kumar extols Canara Robeco Infra Fund saying "their infra fund rightly judged that infrastructure companies will do badly in this market and so wisely moved to other sectors".

When I buy an infra fund, I don't need good NAV. I want a full exposure to infra. Period. I may be having 90% of my portfolio in other things and for the kicker, I would want 10% into infra. If it tanks, I would take a hit on 10% of my portfolio. But if the fund manager starts buying ICICI bank in my infra fund, what is the use of my 10% allocation to infra?

Such fraudulent fund management destroy our portfolio balancing. If one is going for any thematic fund, the fund manager must stay with the theme.


Moneylife Team

In Reply to Madhur Kotharay 5 years ago

That is why we say avoid sector/thematic funds

Oil ministry yet to decide on allowing oil PSUs to buy ADB stake

Gas utility GAIL, refiners IOC and BPCL and exploration firm ONGC have already informed ADB of their decision to exercise their Right of First Purchase/Refusal on the multilateral lending agency’s stake

New Delhi: The oil ministry is yet to decide on allowing GAIL India, Indian Oil Corporation, Bharat Petroleum Corporation and Oil and Natural Gas Corporation (ONGC) to acquire the Asian Development Bank’s (ADB) stake in Petronet LNG (PLL), reports PTI.

“We have received requests from all the four companies (who are promoters of Petronet) for buying ADB’s (5.2%) stake. We are yet to decide on it,” oil secretary GC Chaturvedi told reporters here.

The ADB had on 23rd August offered to sell its 5.2% stake in PLL, in which the four state-owned oil and gas companies hold a 12.5% stake each.

Gas utility GAIL, refiners IOC and BPCL and exploration firm ONGC have already informed ADB of their decision to exercise their Right of First Purchase/Refusal on the multilateral lending agency’s stake.

“We are debating on the issue. If allowed, the stake of the four PSUs will rise above 50% in PLL, which will some implications like the company coming under purview of CAG audit,” he said.

However, he hastened to add that PLL coming under the CAG was “after all, not a bad thing”.

The oil secretary is also the chairman of Petronet.

Gaz de France International (GDFI) holds a 10% in PLL and also has the right of first refusal over ADB’s stake.

In case the French energy giant also decides to exercise its right, ADB’s 5.2% stake will split between the five partners in proportion to their current shareholding.

While the state-run Indian firms would get 1.08%, or 81.25 lakh shares each, GDFI would be eligible for a 0.867% stake.

Sources said GDFI is unlikely to exercise its right and if that happens, ADB’s 5.2% stake will be split equally among the four PSU promoters.

The price payable to ADB would be the lower of either the average of the weekly high and low of the closing price of PLL during the six months preceding the date of purchase, or the average of the weekly high and low of the closing price of PLL during the last two weeks preceding the date of purchase.

For 81.25 lakh shares, the consideration works out to about Rs120 crore, sources said, adding that the promoters, as per the new Takeover Code, would have to make an open offer for acquiring a further 26% stake from minority shareholders if they buy the shares in one transaction.

PLL’s constitution states that participation of PSUs would be to the extent of 50% and the joint venture company would not be a government company.

Sources said the legal opinion taken by the promoters states that PLL would not be considered a government company following an acquisition of additional equity by the PSUs from ADB.

Sources said PLL would not turn into a PSU following the acquisition of stake by the PSUs because neither of the conditions specified in Section 617 of the Companies Act would be met.

The conditions are that at least 50% of the paid-up capital of PLL should be held by the central government or by one or more state governments, or PLL should be a subsidiary of a government company.

The immediate fallout of the acquisition would be that PLL would come under the purview of government agencies like the CAG, they said.

The state-run firms have argued that the acquisition of shares offered by ADB will result in securing controlling interests in PLL.

As PLL has got long-term plans to increase its capacity in more locations, additional investments in PLL will help the promoters grow their gas business, they said.

Also, on their initial investment of Rs99.37 crore, the promoters have been rewarded by a dividend of Rs77.3 crore till date. Besides, the investment has appreciated manifold from Rs99.37 crore to Rs1,500 crore at current market prices.

There was a possibility that in case the promoters decide to waive their right of first purchase, the entire equity stake being divested by ADB may be acquired by GDFI, thereby increasing its equity stake to 15.20% and making GDFI the single largest shareholder in PLL.

The ADB had in fact first proposed to exit PLL in 2008, but then company CEO Prosad Dasgupta was in favour of a third party like Chevron or steel baron Lakshmi Mittal’s group buying the stake instead of the four promoters.

Sources said Mr Dasgupta had on 29 February 2008, written to then GAIL chairman UD Choubey to say that sale of ‘even one share’ held by ADB to the four promoters or Gaz de France (GdF) would trigger the Takeover Code, turn the joint venture into a state-run firm and may result in delisting from the bourses.

The ADB and German Development Bank KfW had in 2008 approved a loan of $169 million to Petronet for its expansion projects at Dahej and new terminal at Kochi, but the multilateral lending agency’s internal norms prohibit it from having both debt and equity exposure in a company.

“In 2004, ADB had sanctioned a $75 million loan to Petronet. But once it took a 5.2% stake for less than $8 million, ADB could not disburse the balance due to its internal regulations,” a source said.

ADB norms also stipulate that it divest its equity holding in a company three years from the date of the company going public. Petronet’s IPO came out in 2004 and the ADB was supposed to exit Petronet in 2007, but was persuaded to stay on.


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